Market Commentary

June 1, 2020

WEEKLY MARKET FOCUS: TRADE WAR, CORONAVIRUS, AND

JOBS

 

THIS WEEK'S MORTGAGE RATE SUMMARY

HOW RATES MOVE:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.

RATES CURRENTLY TRENDING: NEUTRAL

Mortgage rates are trending sideways this so far today.  Last week the MBS market improved by +27bps.  This was enough to potentially move rates or fees very slightly lower last week. We saw low rate volatility through most of the week.

THIS WEEK'S RATE FORECAST: NEUTRAL

Three Things: These are the three areas that have the greatest ability to move rates this week: 1) Trade War, 2) Coronavirus and 3) Jobs

1) Trade War: This has leapfrogged COVID -19 as the biggest concern by long bond traders as the economic havoc from the virus is largely mapped out and priced in. However, the growing speculation and probability of a rekindled trade war between the US and China could cause any future economic rebound to be pushed further out.

2) Coronavirus: Domestically, we are focused on the new data showing a spike in cases after the Memorial Day Weekend in the states that have reopened. Globally, Brazil (which denied the pandemic as real) has now joined the US as the only other country above 500K cases. Great Britain is moving ahead with plans to lift restrictions even though daily deaths have not subsided. Meanwhile, in China, they can't find a single active case of the virus in the epicenter of the breakout - Wuhan.

3) Jobs: We have a ton of employment-related data this week, culminating in Big Jobs Friday with Non-Farm Payrolls, Average Hourly Wages, and the Unemployment Rate.

Central Bank Palooza: We will get important interest rate decisions and policy updates from the Reserve Bank of Australia, Bank of Canada, and the European Central Bank.

THIS WEEK'S POTENTIAL VOLATILITY: AVERAGE

Rates have been locked in a tight trading channel for weeks now. This week we do have some economic data denoted above that can move rates and increase volatility.

BOTTOM LINE:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Source: TBWS